The Trade Desk, Inc. (TTD) is scheduled to report its third-quarter (ended September 30, 2023) results after the market closes on November 9, 2023. The company’s EPS and revenue for the quarter are expected to increase year-over-year. In this piece, I have discussed why it could be wise to wait for a better entry point in the stock.

TTD’s EPS and revenue for the third quarter are expected to increase 11.7% and 23.4% year-over-year to $0.29 and $487.24 million, respectively.

Similar to the last reported quarter, the company’s strong customer retention is expected to have driven revenue growth. Customer retention was over 95% during the second quarter, maintaining the trend for nine consecutive years. Moreover, the digital advertising market recovery is expected to have boosted its ad revenues.

Additionally, the rise of streaming is leading to the shift from linear TV to connected TVs (CTVs). This is an area where TTD is expected to witness strong growth. During the last quarter, TTD announced the launch of Kokai, a new digital advertising approach incorporating advances in distributed artificial intelligence (AI), measurement, partner integrations, and a revolutionary, intuitive user experience.

TTD’s Founder and CEO, Jeff Green, said, “The Trade Desk benefits from a rich yet highly complex dataset with very high integrity. With Kokai, we are able to help our clients make sense of that data with AI and help the marketer make the best decisions at every turn. Building on our ground-breaking work with Koa, we are distributing AI across our platform, so that it can serve as an expertly trained co-pilot to today’s modern marketer.”

TTD’s stock has declined 9.4% over the past three months but gained 77.7% over the past year to close the last trading session at $77.70.

Here’s what could influence TTD’s performance in the upcoming months:

Robust Financials

TTD’s revenue for the second quarter ended June 30, 2023, increased 23.2% year-over-year to $464.25 million. Its adjusted EBITDA rose 29.3% over the prior-year quarter to $179.57 million. The company’s non-GAAP net income increased 41.4% year-over-year to $139.50 million. Also, its non-GAAP EPS came in at $0.28, representing an increase of 40% year-over-year.

Favorable Analyst Estimates

Analysts expect TTD’s EPS for fiscal 2023 and 2024 to increase 19.6% and 19.6% year-over-year to $1.24 and $1.49. Its fiscal 2023 and 2024 revenues are expected to increase 23.3% and 23.2% year-over-year to $1.95 billion and $2.40 billion, respectively.

Stretched Valuation

In terms of forward EV/EBITDA, TTD’s 48.16x is 490.4% higher than the 8.16x industry average. Likewise, its 18.97x forward EV/Sales is 979.8% higher than the 1.76x industry average. Its 62.50x forward non-GAAP P/E is 323% higher than the 14.77x industry average.

High Profitability

In terms of the trailing-12-month net income margin, TTD’s 7.46% is 116.4% higher than the 3.45% industry average. Likewise, its 8.50% trailing-12-month EBIT margin is 2.7% higher than the industry average of 8.28%. Furthermore, the stock’s 29.20% trailing-12-month levered FCF margin is 265.5% higher than the industry average of 7.99%.

POWR Ratings Reflect Uncertainty

TTD has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TTD has an F grade for Value, consistent with its stretched valuation. Its favorable analyst estimates justify its B grade for Sentiment.

It has a B grade for Quality, in sync with its high profitability. TTD has a D grade for Stability, consistent with its 1.68 beta.

TTD is ranked #58 out of 132 stocks in the Software – Application industry. Click here to access TTD’s Growth and Momentum ratings.

Bottom Line

With improvements in the overall macroeconomic environment, spending on digital advertising is expected to have improved, boosting the company’s revenues. Moreover, the introduction of Kokai is expected to have helped maintain its over 95% retention rate.

The shift from live TVs to CTVs is also aiding the company’s growth, as it is likely to have led to higher digital advertisement spending. Although inflation is easing and a rate hike looks unlikely, the economy is not out of the doldrums yet. Therefore, ad spending could continue to remain muted.

Additionally, despite the company’s strong growth prospects, it trades at an expensive valuation. Therefore, investors should wait for a better entry point in the stock.

How Does the Trade Desk, Inc. (TTD) Stack Up Against Its Peers?

TTD has an overall POWR Rating of C, equating to a Neutral rating. You may check out the stocks within the Software – Application industry possessing an A (Strong Buy) or B (Buy) rating: Commvault Systems, Inc. (CVLT), eGain Corporation (EGAN), and Autodesk, Inc. (ADSK). To access more Buy-rated Software – Application stocks set to outperform, click here.

What To Do Next?

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TTD shares were trading at $77.93 per share on Wednesday morning, up $0.23 (+0.30%). Year-to-date, TTD has gained 73.83%, versus a 15.73% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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